Microsoft is “All In” for the Cloud, but What About Dynamics?


Accounting Market Analyst

Over the past couple years, Microsoft has made a dramatic – and welcome – about face on cloud computing. Steve Ballmer says, “We’re all in!” Meanwhile, the Office 365 announcement demonstrates Microsoft’s commitment to the cloud, even at the risk of cannibalizing the company’s on-premise alternatives.

We continue to wonder, however, what this all means for the Microsoft Dynamics product line. Migrating desktop apps to the cloud is one thing – no customization or integration. It’s quite another challenge to move four enterprise resource planning (ERP) systems to the cloud and migrate hundreds of thousands of customers.

Here are some of the challenges we see:

  • Architecture - The current Microsoft Dynamics ERP products are built on a single-tenant, hybrid client/server and web-enabled architecture. This architecture works just fine, but it’s not cloud-ready. Sure, these solutions can be hosted to offload IT burdens. But they don’t have the pure web, multi-tenant architecture required to take full advantage of the cloud’s economies of scale. Getting there will require a major re-write of the Dynamics architecture.
  • Multiple products - Cloud migration is daunting enough, but the challenge is further complicated by the existence of four different architectures – AX, GP, NAV and SL. While they're all built on Microsoft platform technologies, their data models and application logic are each unique. Microsoft faces the challenge of converging all four products onto a single cloud architecture. The company has already abandoned Project Green, the prior plan to converge the Dynamics products.
  • Partner channel - Microsoft’s channel partners will need to change their business strategies for the cloud. For years, channel partners have made their money from reselling Dynamics, implementation services, hardware sales and upgrade cycles. There will certainly be a need for customization and integration of cloud-based Dynamics products, but major resale opportunities will fade. Microsoft risks upsetting its tried and true VAR channel as it moves to the cloud.
  • Market readiness - Most importantly, if Microsoft did commit to moving Dynamics to the cloud, would the market be ready? Sure, there’s plenty of hype over the cloud – and we think the benefits of cloud computing are very real. But is Microsoft’s market – the early and late majorities – really demanding a cloud solution? Not yet. So Microsoft would ideally want to time such a major product cycle with its customer base’s appetite. It will happen; we’re just not sure when.

So what might Microsoft do in this situation? We see a few alternatives.

  • Build a new solution similar to Dynamics CRM, which offers a hybrid of cloud and on-premise. Their best bet is probably to leverage the Dynamics CRM platform.
  • Acquire an ERP cloud computing player like Intacct or NetSuite. We see this as less likely since there’s no single player with meaningful market share and .Net technology.
  • Move all four Dynamics products to a cloud computing architecture, essentially replicating four products’ functionality on four evolving platforms.
  • Market around the issue, offering hosted options through partners, but never fully embracing true cloud-based ERP. Risk missing the transition to cloud computing.
  • Bryan

    I’m a long-time Dynamics partner and am very interested in the decision that Microsoft will make in this area. I think many of the points that you make are valid, but I would challenge your discussion of the partner channel.

    In order to have a web-based product in my portfolio, I’ve recently adopted a Cloud ERP solution from Acumatica. The business model that they offer is quite similar to my existing model with Dynamics. I make money from configuration, integration, data migration, and customizing reports. Revenue from software installation goes away in some cases, but that is a small portion of overall revenue.

    Thus, I think that it is possible to involve the partner channel in a web-based, cloud ERP solution without major upheaval.

  • Steve Chapman

    In August we began offering Dynamics GP on-demand at It’s a self-provisioning system. There is no annual contract and no user minimum. It takes less than 10 minutes to sign up for a 30 day free trial and get your system provisioned. You can set up additional users if you want. We’ve included a lot of user documentation, related blog articles, and videos to help you get started with Dynamics GP quickly. Try it out.

  • Mike

    We too are MS Gold partners, who specialized in ERP sales and deployments for 13 years. We backed out of the sales, training and roll-outs, customizations etc to focus squarely on hosting services for Microsoft Dynamics. We seek to partner with the firms that deploy Dynamics ERP. We are of course following what Microsoft’s direction is going to be but in the meantime, customers who are looking to deploy in a more cost effective manner who seek hosting, find us and their partners deploy hosted, still get the professional services – with out the cash outlay for gear and less IT overhead in their office.

  • Peter


    It is a very good question and the points that you raise are valid. I believe that most Dynamics partners are earn a substantial amount of their revenue/margin through the initial software sale. If they won’t recieve this lumpsum anymore but instead have to satisfy themselves with a monthly fraction of this they will need to account for this from a revenue and cashflow perspective. This will require a major chance in business model but in the long run might be for the better.

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